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VAT: Cyprus’ Main Source of Public Revenue

VAT: Cyprus’ Main Source of Public Revenue

Value Added Tax (VAT) is Cyprus’ single most important source of public revenue, Minister of Finance, Harris Georgiades, revealed in his opening address at the first-of-its-kind Limassol VAT Forum, last week.

The Forum was organised by the island’s only VAT-dedicated consulting firm, Chelco VAT Ltd, to celebrate the official launch of its operations at the Four Seasons hotel in Limassol on Friday, 9 June 2017.

“The fact that VAT revenues were up by 7% in 2016 compared to the previous year, and that an even stronger performance is expected this year, is a tangible confirmation of the strong rebound of our economy, which is now growing in excess of 3% of the GDP,” the Minister said, adding that “VAT allowed us to maintain tax certainty and to promote tax breaks and incentives, which further supported economic activity.”

The Minister pointed out that the financial and business services sector of Cyprus spearheaded the recovery of the island’s economy adding:

“For this sector to remain competitive it will have to continue relying on a well-trained and well-informed workforce, on the expertise and knowhow of its professionals and on the high standards of services which it offers. And this is exactly the significance of events like the one you are organising today.”

“This is a Forum of the highest level and I congratulate Chelco VAT for this initiative,” Georgiades said, jokingly adding that “you have managed to add colour to VAT.”

 

Commissioner of Taxation

Echoing the words of the Minister, Cyprus Commissioner of Taxation, Yiannis Tsangaris, said that VAT is the most important international development in taxation in the last 50 years and plays an important role in Europe's single market, adding: “VAT is now levied in more than 160 countries and it typically contributes some 25% - 30% of total tax revenue.”

Tsangaris set the tone for the ensuing panel discussions of the Forum by saying that “the current VAT system, which was intended to be a transitional system, is fragmented,   complex  for  the  growing   number  of business  operating  cross-border  and  leaves  the  door open to fraud.”

As a result of this fragmentation, the Commissioner added, the EU VAT gap, which is the difference between the VAT revenue expected and the VAT actually collected by national authorities, “in 2014 has reached the astronomical amount of nearly €160bln lost in uncollected VAT revenues. It is estimated that at least €50bln of this figure is attributed to cross-border VAT fraud.”

Commenting on the Chelco VAT’s initiative to organise the first ever VAT Forum to be held in Cyprus, he said that “I believe that the gathering of so many professionals  in  one place as well as the interaction  between  them  can  only  have  positive  results  to  all parties involved.”

 

 

 

Alexis Tsielepis

Managing Director of Chelco VAT, Alexis Tsielepis, who also chaired the event, said that from the introduction of VAT in Cyprus in 1992, such a Forum is “25 years overdue.”

He said the Forum represented a first step towards the in-depth study and understanding of this “ignored, even scorned, but ever so important” tax, adding that much should and must be done.

“It’s important to have low tax rates but it is even more important to have a comprehensive package that attracts foreign business. We have made great strides with direct tax and we are at a satisfactory level. When it comes to indirect tax though, we still have a long way to go,” Tsielepis pointed out and added:

“The EU VAT Directive has around 200 articles with ‘may’ provisions which are in the discretion of each Member State whether and how to apply. To date we have not paid particular attention to what could be achieved through the ‘may’ provisions of the Directive… it is time to start exploring those options further.”

 

The Limassol VAT Forum

The VAT Forum examined current problems with the supply of goods within the EU and the proposed solutions through the new VAT Action Plan, VAT problems and solutions for the holding company and how Cyprus can make use of the EU Court of Justice.

The invitation-only event was attended by close to 150 professionals from the island’s legal, accounting and corporate services field, policy makers, tax administration officials, dignitaries, business leaders and others.

VAT issues were discussed in the course of three high-level panel discussions delivered by an array of prominent VAT professionals and academics from Cyprus and abroad.

Those included Cyprus Tax Commissioner, Yiannis Tsangaris, Dr. Stefan Maunz, Partner with Küffner Maunz Langer Zugmaier in Germany, renowned lawyer and professor of VAT, Dr. Ben Terra from the Netherlands and Raymond Feen, Founder and Director of ALLVAT, also in the Netherlands. Also, Prof. Patrick Wille, Founder and President of the international partnership of indirect tax professionals, VAT Forum, Belgium and Kyriacos Scordis, Managing Partner of Scordis, Papapetrou and Co LLC.

Some of the key issues that were discussed included how the European Court of Justice works and how the Cyprus courts can benefit from start referring VAT questions to it, the pressing need to modernise and adapt the VAT system to the digital economy and also to the needs of small and medium-sized enterprises (SMEs) and the swift implementation of a fraud-proof EU VAT system.

 

Forum Sponsors

Sponsoring the event were Swiss EFG Private Bank with local offices in Nicosia and Limassol, leading law firm, Scordis, Papapetrou & Co LLC, Advocates & Legal Consultants, and S. Kaniklides (Cyprus) Ltd, Document Management Services experts.

For more information and for the Forum presentations, visit www.chelcoVAT.com/vatforum.

 

 

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